Concerns Over Increasing weaponization of Trade

Syllabus: GS2/ International Relations

Context

  • The External Affairs Minister of India, S. Jaishankar highlighted that rising globalization along with trade weaponization has  resulted in job losses and dissatisfaction in many societies.

What is trade weaponization?

  • Trade weaponization refers to the strategic use of trade policies and economic measures by countries to exert political or economic pressure on others. 
  • Instead of trade being purely an economic activity aimed at mutual benefit, it becomes a tool of influence, coercion, or retaliation.

Tools of trade weaponization

  • Tariffs and Sanctions: Countries impose tariffs or sanctions on imports from a particular country to hurt its economy.
    • Example: US-China trade war
  • Export Controls: Restrictions on exports of critical technologies or materials to a nation.
    • In 2020, the US government started imposing stricter export controls on China to limit its access to advanced semiconductor technology. 
  • Supply Chain Disruptions: Manipulating supply chains for critical goods, like rare earth metals or energy resources, to gain leverage in political disputes.
  • Currency Manipulation: It boosts a nation’s export competitiveness while hurting the importing country’s economy.

Challenges of trade weaponization

  • Increased Uncertainty: The imposition of tariffs and sanctions creates uncertainty in international markets, making it difficult for businesses to plan for the future.
  • Loss of Export Markets: Retaliatory tariffs restrict access to key export markets, negatively affecting domestic industries that rely on international sales.
  • Strained Diplomatic Relations: Trade weaponization leads to heightened tensions between nations, complicating diplomatic relations.
  • Erosion of Multilateralism: The rise of unilateral trade measures undermines established international trade norms and institutions, such as the World Trade Organization (WTO), leading to a fragmented global trading system.
  • Disproportionate Effects: Protectionist measures disproportionately affect low-income workers and communities, leading to job losses in industries exposed to international competition.

Steps taken against trade weaponization

  • Regional Trade Agreements: Countries are forming or revitalizing regional trade agreements (RTAs) to enhance cooperation and reduce reliance on major economies.
    • Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),
    • Regional Comprehensive Economic Partnership (RCEP) etc.
  • Mineral Security Partnership (MSP) to diversify and stabilize global supply chains of Critical Minerals.
  • Reform of the WTO: Ongoing discussions to reform the World Trade Organization (WTO) aim to enhance its dispute resolution mechanisms and address the challenges posed by unilateral trade actions.
  • Indo-Pacific Economic Framework (IPEF): It serves as a countermeasure to economic coercion by countries that use trade as a tool of influence, promoting a more equitable and rules-based trading system.

Concluding remarks

  • The challenges arising from the weaponization of trade are complex and multifaceted, affecting not only national economies but also the global trading system and international relations.
  • There is further need for encouraging transparency, enhanced communication, and conflict resolution mechanisms to promote a stable and equitable international trading system.

Source: IE

 
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